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The U.S. SEC has approved a three-year pilot that allows the Depository Trust Company to test blockchain-based recordkeeping for certain U.S. securities.
The decision marks the first time the country’s core trade-settlement infrastructure will be permitted to operate a system that mirrors existing holdings on select blockchains through tokenized entitlements.
Regulatory Approval and Scope
The SEC outlined its position in a No-Action Letter issued on Thursday. It confirmed the SEC would not take enforcement action if DTCC mints or retires tokens representing security entitlements already under its custody.
With this assurance in place, the pilot is expected to roll out in the second half of next year. To facilitate the trial, the agency temporarily eased several regulations that ordinarily govern clearing agencies. Specifically, the adjustments encompassed requirements related to operational resilience, 19b-4 submissions, and other core infrastructure standards.
Consequently, this regulatory flexibility establishes a controlled environment for DTCC to evaluate blockchain-based workflows. Moreover, it preserves existing ownership rights and avoids creating any new classes of securities.
Purpose of the Pilot
In a statement shared on X, DTCC says the program will connect traditional finance with emerging blockchain systems.
The program lets investors turn regular book-entry positions into digital tokens, allowing DTCC to test if distributed ledgers can make moving securities faster while keeping existing safeguards. The pilot focuses on certain assets, like Russell 1000 stocks, U.S. Treasurys, and major ETFs, giving DTCC a representative sample to see how the system performs across different markets.
How the Tokenization Process Works
When a participant decides to tokenize their holdings, DTCC first moves the securities from its central ledger into a digital omnibus account. Then, it issues a matching token to the participant’s blockchain wallet.
This ensures that each token represents an existing entitlement in DTCC’s system, without creating new claims or changing investor rights.
Additionally, the tokens may operate on either public or private blockchains, provided that the networks meet DTCC’s technology and governance standards. A formal list of supported networks will be published later, allowing participants to evaluate their options before the pilot begins.
Even though the system uses blockchain, it’s highly controlled. Tokens can only move between DTCC-registered wallets, keeping all activity within a supervised environment.
DTCC also keeps a root wallet that can reverse or fix transactions if mistakes or misconduct occur, mirroring existing U.S. market protections.
The clearinghouse says tokenized entitlements could reduce reconciliation work, allow transfers outside normal settlement times, and improve efficiency.
Reporting Requirements
To maintain transparency, DTCC is obligated to submit quarterly reports throughout the pilot implementation of the program. These updates will outline the number of participating firms, the value of tokenized entitlements, and which blockchains were used or declined.
The reports will also detail outage events, registered wallet totals, and any instances where DTCC exercised its reversal authority.
Ultimately, these disclosures will help regulators track the program’s progress and assess its broader implications.